It seems that gold may have put in a near term bottom as it was able to hold the 10.80 level basis December futures last week. Added support for Gold comes on prospects for a boost in Chinese stimulus and from the definitive rise in global uncertainty following this week’s Chinese massive currency devaluation. Consequently the continued sell-off in global equity markets has helped hold Gold from testing and trading through near term lows at 1073.7 made on July 24th basis December futures. Rallies though have been muted as gold buyers in Asia were in no hurry to come back into the market last week as they obviously are anticipating the market to weaken further. They may have waited too long as Premiums in India and Hong Kong was only up slightly for the week indicating the tepid response to the upside for futures. Having said that we formed a ledge on the charts at 1080.0. If we can hold this level, we could see short covering and bargain buying that could at least drive the market to 1132.0 which was last November’s low, which was at the start of the year was a downside target and now in my estimation a near term resistance level.
December Gold futures registered a bullish breakout on Monday’s session with a close above 1100.0 an ounce on Monday August 10th. Bullish forces could be aligning as the Gold market has rallied steadily since the release of the July unemployment report. There have been some modest signs of Indian and Chinese bargain buying interest following this week’s Chinese currency devaluation with talk of possible further currency devaluations ahead. Market perception that this could be the beginning of a currency war is yet to be seen but the uncertainty over what’s next is significant. I believe that this is what Gold bulls were hoping for, a major policy shift by the world’s second largest economy.
To take advantage of a potential move to the upside I propose the following trade. I would look at buying one October Gold 1150 while selling one October Gold 1200 call for a purchase price of 5.5 points or in cash value $550.00. This is a traditional call spread where the maximum one could collect on this trade and is $5,000.00, if both strikes finish in the money at option expiration. This is before commissions and fees however. The risk is the price paid for the spread plus all commissions and fees.
For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at anytime at slusk@walshtrading.com
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
